2024 Tax Tips
Following are tax strategies to consider for 2024 as well as how to plan for future tax years. Atlas Financial Advisors and its representatives do not provide tax advice, accounting or legal services. This information is publicly available and provided here to enable you to discuss any of these topics with your personal tax advisor.
Reducing Taxes through Tax-Free Investments, LT Gains & Tax Loss Harvesting
Tax-Free Municipal Bonds & Long Term Cap Gains Management
As you probably know, the US uses a graduated income tax schedule. So using strategies to lower your taxable income to a lower bracket may help you keep more of your income and market gains. A few basic investment strategies are purchasing tax-free municipal bonds and holding stocks and other taxable assets for more than 1-year to achieve the lower capital gains tax. Consult your advisor whether you need to make any adjustments that could affect your 2023 and forward tax years, and to explore other strategies.
Tax-Loss Harvesting
Tax-loss harvesting is a strategy to take a loss on underperforming assets, put the money into other investments that you think more promising, and use the investment loss to offset capital gains you may have elsewhere. Note that you cannot re-invest into substantially similar investments, like a similar ETF from a different fund company or a bond with similar maturity, coupon, rating and industry; the loss in these cases will be disallowed by the wash-sale rule.
Another potential benefit here is if your total losses exceed your total capital gains then you can apply $3000 of the loss to reduce your federal ordinary income amount. Short and long term capital gains and losses are netted so be sure to consult your tax advisor to determine if this strategy makes sense for you.
A Heads-Up on Net Investment Income Tax (NII)
Per the www.irs.gov website, individuals will owe tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds (these thresholds are not indexed for inflation):
Filing Status Threshold Amount
Married filing jointly $250,000
Married filing separately $125,000
Single $200,000
Head of household (with qualifying person) $200,000
Qualifying widow(er) with dependent child $250,000
This tax applies also to certain estates and trusts that have income above the statutory threshold amounts. More NII tax information can be found on the IRS website at https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax.
There are many nuances to the NII tax so consult your tax advisor before making any related decisions.
Charitable Giving DAFs for Tax Payers that Itemize Deductions
A Donor-Advised Fund (DAF) is an investment vehicle used to set aside multiple years of charitable giving while taking a tax deduction for the whole amount in the first year. This can be useful for situations such as where you earned more income than expected and you want to use a larger amount for giving, but you want to be able to take time to decide where to give rather than rushing to give “wherever” as we often do as year-end approaches. The types of assets you can contribute to the DAF is broad, including cash, stock, crypto-currencies and non-publicly traded assets. But keep in mind once you donate the asset to the DAF it can ONLY be used for charitable giving. It’s a permanent commitment. Not surprisingly, most providers charge fees for a DAF which may include annual administrative and investment fees and possibly a setup fee. There are other fine points to this vehicle, so be sure to consult your tax advisor before opening a DAF.
Contribute the Max Amount to Your Retirement Plan
If you’re still earning income, consider increasing your contributions to your qualified retirement plan(s) to reach the maximum contribution amount. The following info is from irs.gov:
401(k), 403(b) and 457 Plans:
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $23,000, up from $22,500. You have until December 31st, 2024 to contribute to these plans.
For employees aged 50 and over the catch-up contribution limit for these plans has increased to $7,500, unchanged from 2023. Adding this to the base $23,000 limit means you can contribute a total of $30,500 in 2024.
SECURE ACT Catch-up for ages 60-63:
Under the SECURE ACT 2.0, some 401(k) plans allow a higher contribution of $10,000 or 150% of the standard catch-up amount, whichever is greater, for those aged 60-63. Check with your 401(k) plan sponsor as to whether this applies to you.
IRA’s:
The limit on annual contributions to an IRA increased to $7,000, up from $6,500.
The catch‑up contribution limit – again for individuals aged 50 and over - is not subject to an annual cost‑of‑living adjustment and remains $1,000.
SIMPLE IRAs allow an employee to contribute up to $16,000 in 2024, and $19,500 for employees over age 50.
Note that taxpayers can deduct contributions to a traditional IRA if they meet certain income criteria. You have until April 15th, 2025 to contribute to IRAs.
ROTH IRA:
Per the IRS, the income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $144,000 and $159,000 for singles and heads of household. For married couples filing jointly, the income phase-out range is increased to between $228,000 and $248,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
For more information on limits and thresholds, check out https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500. And as always, check with your tax advisor for more accurate information on what applies to your financial situation.
If You Worked Remotely Out-of-state or Out-of-country…
If you worked in a different state from your employer’s home base, make sure you check with your tax advisor as to whether you have tax liability in both states. As a general rule, if you spend over half the year working remotely (183 days) then that state may seek to tax your total income as a resident. Tax states (fortunately not Florida!) have different definitions of residency so track your days in each state where you worked and consult your tax advisor. It’s more complicated if you lived and worked overseas for over half the year. Under the Foreign Earned Income Exclusion (FEIE) you may exclude a portion of your income but again the rules vary. Check with your tax advisor if this scenario applies to you.
Convert Your Traditional IRA to a Roth IRA?
If your traditional IRA has lost value you may want to consider converting to a ROTH IRA. An advantage of a converting to a ROTH is future withdrawals can be made tax free and any gains in your ROTH account grow tax free. The negative of converting is you will have to pay tax on the converted amount at your current tax rate rather than a potentially lower tax rate typically applicable at retirement. Also, you may incur income tax plus penalties if you withdraw money within 5 years of opening the ROTH, or before age 59½. Talk to your tax person to assess whether a ROTH conversion makes sense for you.
Open or Add to a 529 Plan
A 529 education savings plan is a good way to help pay qualified primary or secondary school tuition and other eligible education expenses. Though contributions to a 529 plan are not deductible on your federal income taxes, funds in the account grow tax free usually for both federal and state income tax purposes, and there’s no federal income tax on the distribution when you use the funds for qualified education expenses (often no state income tax either).
There is no limit on the amount you can contribute to the plan. However, each state sets an aggregate maximum contribution limit per beneficiary, which typically ranges from $235,000 to $550,000. A 529 plan a good way to give gifts to children or grandchildren (or a beneficiary of any age) and not incur federal gift tax. Generally you may contribute up to five years’ worth of the annual gift tax exclusion amount per beneficiary in one year. Certain conditions apply so check with your tax advisor.
Federal Gift & Estate Tax Exemption Limits
The IRS allows you to give away up to $18,000 per recipient in 2024 (double for married couples) in money or property to as many people as you like each year. The government also exempts $13.61 million in 2024 ($27.22 million for married couples) in gifts from tax over a person's lifetime. This said, current exemptions limits expire in 2026 if Congress does not roll them over which may affect your estate tax liability substantially at death. Gifting assets through trusts can be used to reduce a potential future tax liability to your estate. Again, consult your tax advisor on how to best plan for future changes.
Atlas Financial Advisors and its representatives do not provide tax or accounting advice. Consult your tax and legal advisors before making any financial decisions.
Key 2024 Tax Dates
April 15, 2024
Deadline to file individual federal income tax returns for 2023 and pay any tax due.
Deadline to request an automatic 6-month extension to file, which extends the filing deadline to October 15, 2024. However, you must still pay any estimated tax due by April 15.
Deadline to contribute to an IRA, Roth IRA, Health Savings Account (HSA), and most other tax-advantaged accounts for the 2023 tax year.
First estimated tax payment due for 2024 taxes.
April 17, 2024
Tax filing deadline for residents of Maine and Massachusetts due to state holidays.
June 15, 2024
Second estimated tax payment due for 2024 taxes.
September 15, 2024
Third estimated tax payment due for 2024 taxes.
October 15, 2024
Final deadline to file 2023 individual federal income tax returns if an extension was requested.
January 15, 2025
Fourth estimated tax payment for 2024 taxes due.
Some other notable dates:
January 31, 2024 - Deadline for employers to mail W-2 forms to employees.
April 1, 2024 - Required minimum distribution (RMD) deadline for certain retirement accounts if you turned 72 in 2023.
It's important to note that state income tax filing deadlines may vary, with some states having different due dates than the federal deadlines.
This calendar contains select U.S. federal tax-related deadlines and notable dates. It does not include all tax-related deadlines and dates that may be applicable depending on the facts and circumstances, and it does not address all state and local tax deadlines. You should always consult with your personal tax adviser regarding tax matters. Information contained herein is based on data from multiple sources considered to be reliable and Atlas Financial Advisors (“Atlas”) makes no representation as to the accuracy or completeness of data from sources outside of Atlas and does not apply to deadlines for specific state tax fillings. Atlas does not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.